Arranging product liability insurance for your exports to the United States of America or Canada

What is product liability insurance?

If your business manufacturers, wholesales or retails a physical product and that product injures someone or damages property, you could be held liable.

Example 1

A grocery store sells a food item, which causes someone to be unwell. The food is checked and it is the direct cause of the illness. The person who bought the food could claim against you for their personal injuries and suffering.

Example 2

An engineering firm supplies a piece of metal machinery. That item then fractures, causing damage to other pieces of equipment.

The company who bought the product could claim against the engineers. This would include the costs of replacing damaged equipment and additional workaround expenditure.

In both of these examples, your business would need to be proven as negligent. If someone eats food past it’s sell by date, it is not the retailers fault. If a business does not use a machine correctly, or doesn’t follow a sensible maintenance programme, it is not the manufacturers responsibility.

Please note……

It doesn’t matter whether you make the product or not, if the financial relationship is between you and the customer, then the (initial) claim will be made against your business. If you did not manufacture the item and your business insurance policy pays out, then your insurers may choose to pursue a claim against whoever produced the item.

What would a product liability insurance claim involve?

A product liability claim will, usually, result in a financial payment to recompense the individual for pain and suffering. A solicitor does not have to be involved in submitting a claim against a business insurance policy. However, it is usual that an individual, or a business, will involve, or seek advice from, a solicitor. The solicitors costs, in a successful claim, form part of the overall settlement. It is not unheard of (in the UK) for the solicitors costs to be around 30-40% of the total claim costs.

What is different with North American exports?

Wherever you are in the world, product liability insurance claims costs, including solicitors fees, could be many thousands of pounds. In the United States of America and Canada, the total cost of liability insurance claims are, general, 5 to 10 times higher than we may see in the United Kingdom.

For this reason, UK based business insurers will increase the premium and apply higher excesses, for product liability insurance, where a business sells products in America or Canada.

How do I get suitable product liability insurance?

Most business insurance policies automatically exclude cover in respect of products sold in North America. This exclusion will apply whether you knowingly export, i.e. direct to a customer in the U.S.A. or unknowingly export, i.e. to a UK business who then chooses to sell to an American customer.

You will need to ensure your product liability has a suitable extension, for exports to the U.S.A. or Canada.

The easiest way to do this is to speak to an independent business insurance broker. A brokers role is to seek information from you, of your insurance needs and to offer, or quote, a suitable product. They will ask you for information on your estimated turnover, for the next year. They will need to know the percentage of your turnover, split by geographic territory, usually UK, Europe, North America and Rest of World. This information will be used to price your policy. Where you are exporting to North America, you will usually be charged a higher premium and there may be a higher excess applied. Most insurers start at £2,500.